Putin’s Golden Dilemma

A golden toilet installed in central Kiev to symbolize the corruption of the Yanukovych regime, February 3, 2014

On the surface, it would appear that Russian President Vladimir Putin has gained the upper hand in Ukraine since sending Russian troops to Crimea: while Western leaders have vigorously protested the incursion, there has been little enthusiasm for some kind of direct action in support of the new government in Kiev. Yet behind the military posturing and defiant rhetoric, Putin and his advisers seem hesitant to deploy Russian troops beyond Crimea, and on Monday they halted large-scale military maneuvers in Russia’s western military district, which had aroused panic in Kiev. Is the Kremlin more worried about this crisis than we think?

Clearly, one reason Putin seems to have decided to only go so far in Ukraine is the possibility of provoking retaliatory moves from the West. In a bristling response to Washington’s threat of imposing severe economic sanctions along with a host of other measures that would isolate Russia from the West, the Kremlin has let it be known that it could in turn abandon the dollar as reserve currency and default on loans to American banks. But Putin may also be apprehensive about the reaction within Russia itself if he pushes the confrontation with Ukraine to the brink of war—a concern that may actually give the West further leverage.

It may seem that Putin has little regard for the views of the population he serves—the Kremlin started moving troops into Crimea before the upper house of the Russian Parliament, the Federation Council, had even voted on the action. (In fact, the Federation Council is filled with the Kremlin’s hand-picked supporters, so its approval could be counted on, and was unanimous.) But Moscow has also gone to considerable effort to keep domestic opinion about Ukraine on Putin’s side: since the protests in Kiev began last November, there has been a constant barrage of anti-American propaganda on Russian state-controlled media. The toppling of Ukrainian President Viktor Yanukovych, an autocratic leader whose government was plagued by corruption, hits dangerously close to home for Putin. The memory of large-scale demonstrations against the Russian government just over two years ago, and continued allegations of Kremlin corruption by Russian opposition leaders, are doubtless much on the minds of senior Putin advisers as Russia offers refuge to the fallen Ukrainian leader.

For the time being, ordinary Russians seem to support the Kremlin’s aggression toward Ukraine. Over 20,000 people in Moscow and 15,000 in St. Petersburg took part in street demonstrations last weekend to express their backing of Russia’s policies. But according to the British daily The Telegraph, the Moscow rally “bore all the hallmarks of attempting to boost numbers by paying protesters and busing in state employees.” And, for its part, the Russian independent media has almost unanimously condemned Putin’s actions. Aleksei Venediktov, editor in chief of Ekho Moskvy, for example, said the incursion into Crimea was a huge mistake by Putin “that will create enormous problems in both the short and long terms, and will lead to instability within the Russian Federation.” It could be only a matter of time before the mood of the country changes in reaction to Ukrainian events, particularly if there are further revelations about corruption that implicate Russia’s own ruling elite.

One of the primary motivations of the protesters who ousted Yanukovych was a sense of outrage about the pervasive thievery that he and his entourage were engaging in. This has been further fueled by the public opening of Yanukovych’s lavish estate outside Kiev, which has been revealed to have not only a garishly opulent palace, but also a series of exotic gardens, a garage full of million-dollar sports cars, and a private zoo. Meanwhile, the trail of misused state funds has now led well beyond Ukraine’s borders.

Last Friday, Swiss authorities opened a criminal probe of Yanukovych and his son, Alexander. Geneva’s chief prosecutor, Yves Bertossa, said his office was investigating allegations of “aggravated money laundering.” And Ukraine’s new interim prime minister, Arseniy Yatsenyuk, has accused the Yanukovych government of plundering the state’s coffers by moving $70 billion to private offshore accounts. Yatsenyuk claimed that Ukraine’s gold and hard currency reserves had dropped from $37 billion to $15 billion since Yanukovych came to power in 2010. As Ukrainian journalist Dmitry Gnap observed recently in the Russian paper Novaya gazeta: “When in power, you don’t have to be a rocket scientist to make billions in government business.”

Such revelations are doubtless a source of unease for Putin and his associates, who have long faced similar allegations by their Russian critics. (Significantly, Putin conceded in a lengthy press conference on Tuesday that the Yanukovych government was ousted because of corruption: “Why are Ukrainians demanding radical change? Because they have grown used to seeing one set of thieves replaced by another.”) According to a series of well-documented reports published by opposition leader Boris Nemtsov and his colleagues, Putin has at his disposal twenty villas and residences, four yachts, and a palace on the Black Sea that would arouse the envy of Louis XIV. Then there is the Kremlin-installed president of Chechnya, Ramzan Kadyrov, widely viewed as Putin’s stooge. Kadyrov, a ruthless dictator who lives like a king in a fortified compound southeast of the capital, Grozny, shares Yanukovych’s penchant for luxury cars and exotic animals and also owns an impressive stable of race horses.

Political activist and anti-corruption blogger Aleksei Navalny (now conveniently under house arrest after being slapped with bogus criminal charges by Russian prosecutors on February 28) has also accused Putin and his government of vast financial malfeasance, citing shady arms procurement deals and, more recently, the tender of construction contracts for the Olympic games to Putin’s cronies. Navalny famously dubbed the Kremlin’s political party the “party of crooks and thieves.” In the view of the respected political analyst Dmitry Oreshkin, official corruption in Russia “has become a Frankenstein, which Putin himself created. Now it will be hard, even impossible to rein it in.”

According to a 2012 poll conducted by the Russian Levada Center, most Russians are aware of Putin’s vast wealth and that of the oligarchs who surround him. Although almost 40 percent of those polled voiced their disapproval, at the same time most were resigned to the situation because they felt there was nothing they could do about it. But the example of Ukraine could rouse Russian citizens out of their passivity, especially if the Ukrainian crisis causes the value of the ruble to continue its decline and the Russian economy starts to founder, as many economists are now predicting.

And this is where the American strategy of economic sanctions against the Russian government could come into play. President Barack Obama has been accused by critics of not standing firm against Putin and the Russian military occupation of Crimea. But if the US pushes for economic sanctions, as Obama has threatened, it could have far-reaching repercussions in Russia, particularly for the Russian business elite, an important base of political support for Putin. (Recall the example of Iran, where Western economic sanctions caused a severe economic crisis and helped bring the Iranian leadership to historic talks to curb its nuclear program.) Freezing Russian financial assets abroad and denying visas to Russian officials and businessmen who seek to travel to the West could seriously undermine Putin’s political position in the long term. Vladimir Salakhutdinov, country manager for American Express Russia, observed a few months ago that more than 60 percent of Russian executives planned to increase their business travel abroad over the next year to generate more investment. Travel bans will hit these executives where they are most vulnerable—their pocketbooks.

Of course, such sanctions, to have full effect, would require the cooperation of European countries, which are dependent on Russia for a quarter of their gas supply, and therefore may be more cautious than the US in confronting the Kremlin. But much of this gas travels through pipelines in Ukraine, and further Russian military incursions into the country could unleash a bloody conflict that would likely disrupt the flow of gas and other goods to the West.

Judging from Putin’s statements, he is hedging his bets before making further military moves in Ukraine, although his government will strengthen its efforts to undermine the new temporary government in Kiev by inciting discontent among the country’s pro-Russian population in Crimea and in Eastern Ukraine. If Obama hopes to dissuade Putin from further aggression, and possibly get him to withdraw the additional military forces brought into Crimea over the weekend, his best strategy may be to make it clear that further provocation of the West could have far-reaching consequences for Putin’s own supporters in Russia.